Mining Stocks: An Upward or Downward Correlation to Gold?

It’s important to know which mining stocks have overperformed and which ones have underperformed precious metals. Precious metal prices have risen due to uncertainties since President Donald Trump was inaugurated on January 20, 2017.

The buoyancy of precious metals could be challenged even more by possible future interest rate hikes, which could cause mining stocks to fall.

Mining companies that have high correlations with gold include Agnico-Eagle Mines (AEM), Primero Mining (PPP), Silver Wheaton (SLW), and Franco-Nevada (FNV). These stocks rose significantly in 2016 and have seen strong starts to 2017. Although mining companies often amplify the returns of precious metals, they’ve had mixed performances in the past week.

While all the above stocks are closely related to precious metals, Agnico-Eagle Mines has the highest correlation to gold year-to-date. Primero Mining is the least correlated to gold.

Over the past three years, Silver Wheaton has seen an upward-trending correlation to gold. The correlations of Agnico-Eagle Mines and Franco-Nevada have seen upward and downward correlations. Primero Mining, however, has a clear downward correlation to gold.

Silver Wheaton’s correlation has risen from a ~0.58 three-year correlation to a ~0.59 one-year correlation. A correlation of ~0.59 means that about 59.0% of the time, Silver Wheaton has moved in the same direction as gold in the last year. Usually, a fall in gold leads to falls in mining stocks, and vice versa.

Some ETFs that have high correlations with precious metals include leveraged funds such as the Direxion Daily Gold Miners Bull 3X ETF (NUGT) and the Pro Shares Ultra Silver (AGQ).